Biz Break: Zynga shares hit all-time low, layoffs may loom

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The corporate logo of Zynga Inc, the social network game development company, is shown at its headquarters in San Francisco in this April 26, 2012 file photo. Game provider Zynga Inc slashed its 2012 outlook and quarterly results badly missed Wall Street targets, sending its stock plunging 35 percent and casting a chill over Facebook Inc on the eve of the social network’s inaugural results. REUTERS/Robert Galbraith/Files (UNITED STATES – Tags: SCIENCE TECHNOLOGY BUSINESS MEDIA)

Today: Investors punish San Francisco online gaming company Zynga after it forecasts a quarterly loss. Plus: Good news on the jobless front boosts Dow to 5-year high. And speaking of highs, gas prices in California approach the all-time record.

Zynga plunges, possible layoffs loom

Zynga shares got hammered Friday, a day after forecasting a hefty quarterly loss.

The San Francisco online gaming company, best known for their social games such as “FarmVille” and “Words With Friends,” dropped 11.9 percent, or 34 cents, to end the day at its lowest closing price ever, $2.48. Zynga warned Thursday afternoon that it expected losses of 12 to 14 cents a share for the third quarter, based on lower demand for its games and an $85 million to $95 million charge for its acquisition of rival gamemaker OMGPop earlier this year. That sent Zynga shares into a tailspin, falling 20 percent in after-hours trading. Shares bottomed out Friday morning at an all-time low of $2.21 before regaining some of those losses.

It’s been a rough year for Zynga, which went public in December at $10 a share, peaked near $15 in March, but has been in a steady decline since, losing more than 75 percent of its IPO valuation.

More troubling, Zynga stock’s total net worth is nearly zero. The total value of its on-hand cash, securities and headquarters translates to $2.46 a share, according to a Los Angeles Times report, just a hair below Friday’s closing price.

The purchase of OMGPop, maker of the onetime hit game “Draw Something,” is looking increasingly like an anvil tied to Zynga’s neck. Zynga bought the company at the peak of “Draw Something’s” popularity, which didn’t prove to be lasting. The write-off of up to $95 million accounts for more than half of the purchase price, a sign that Zynga hugely overpaid; The Next Web blog estimated Zynga is losing up to $482,000 a day thanks to the deal.

The lower forecast didn’t impress analysts either. “They suck at forecasting,” Michael Pachter, a Wedbush Securities analyst, told the blog Ars Technica. “Nine weeks ago they thought they’d got (their estimates) down to as low as they could be and now they’re down another 20 percent, which means that their monetization is deteriorating faster than we thought.”

As bad as things are at Zynga, they may soon get worse: CEO Mark Pincus sent employees a letter Thursday describing the need for “targeted cost reductions and focusing our new game pipeline to reflect our strategic priorities” — which could very well mean restructuring and layoffs, according to All Things D. Sterne Agee analyst Arvind Bhatia agreed, telling the Associated Press he expects “significant layoffs in the coming months” at Zynga.

Friday’s damage wasn’t limited to Zynga; Facebook, which earlier this year reported 12 percent of its revenue comes from Zynga, saw its shares fall 4.73 percent,, or $1.04, on fears that Zynga’s woes will impact Facebook’s earnings. Facebook ended the day at $20.91.

Jobless numbers boost Dow to 5-year high

Wall Street hit five-year highs Friday morning after a surprisingly upbeat jobs report that found unemployment fell in September to 7.8 percent, the lowest since January 2009. But the optimism didn’t last, and the morning’s gains were largely erased by the time trading closed.

All three major indexes approached gains of around 0.7 percent earlier in the day before quickly reversing course; the tech-heavy Nasdaq fared the worst, ending the day in negative territory, down 13.27, or 0.42 percent. The Standard & Poor’s 500 ended the day around where it began, down 0.47, or 0.03 percent. The Dow Jones industrial average slipped the least, ending with a slight gain of 34.79, or 0.26 percent, to close at 13,610.15, its best since December 2007.

The federal report, which found an additional 873,000 people were employed last month, was an encouraging sign of economic recovery. “An overall better-than-expected jobs report, consistent with most recent data that suggest the economy is gaining some momentum,” economist Sal Guatieri told the Associated Press. Unemployment had been above 8 percent for the previous 43 months.

But the lack of investor confidence followed a recent trend. “After an initial bump up this morning, there hasn’t been sustained buying to hang on to the gains,” market strategist Frederic Dickson told Bloomberg News. “Today’s trading is a pattern we’ve seen before this week, with a strong start and then we give up gains later in the day.”

Timing also likely played a factor. “It seems like traders are locking in some profits from earlier this week and ahead of the earnings season,” Rockwell Global Capital economist Peter Cardillo told CNBC. The third-quarter earnings season begins next week.

Tech stocks got the worst of it Friday. In addition to losses by Zynga and Facebook, Apple (AAPL) fell 2.12percent, or $14.15, to close at $652.65, and LinkedIn, Oracle (ORCL), HP, eBay (EBAY),Yahoo (YHOO) all ended the day down more than 1 percent.

Gas prices near all-time high

Another day, another 20-cent hike in gas prices.

That’s been the pattern this week across California, as gas prices approach the state’s all-time high, set in 2008, after a series of refinery distribution problems have limited supply and sent wholesale prices soaring. And expect it to get worse this weekend before it gets better. “We most likely will exceed those highs,” AAA”s Cynthia Harris told the Merc’s Gary Richards. “By how much we don’t know.”

Prices have skyrocketed 40 to 60 cents this week, topping $5 a gallon in some places. According to AAA, the average retail price of gas in California rose 17 cents to $4.49 a gallon early Friday, up from $4.13 a week ago. In San Jose, the average price was $4.54, three cents shy of its all-time high.

“It’s insane,” said Matt Hurd told Reuters as he filled up his in SUV in San Francisco, where the price averaged 4.60 a gallon, just two cents off of that city’s record.

The price spike is being blamed on a perfect storm of problems, ranging from decreased production at Chevron’s Richmond refinery following this summer’s fire, to a power outage earlier this week at a Southern California refinery, to the seasonal dropoff in production as refineries switch from a summer to a winter blend of gasoline, Reuters reported.

There was one glimmer of hope that gas prices will soon ease; ExxonMobile said Friday production had resumed at its refinery that suffered the power outage.

And the widely watched Standard & Poor’s 500 index: Down 0.47, or 0.03 percent, to 1,460.93.

Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Follow Mike Murphy on Twitter at twitter.com/mmmmurf.